Every time
National Australia Bank
looks to be hitting some targets, another loose round takes out a toe.

There have been toxic assets from the financial crisis and a series of ricochets from the dire British economy, the latest forcing NAB to pre-empt its profit announcement with a bad debt warning.

Cameron Clyne
didn’t buy those toxic American assets, nor did he set up NAB’s UK expansion. But it’s his reputation on the line despite him not loading the bullets.

So it must be frustrating that despite a very consistent message since 2009 – he will not be drawn into fire sales, he will concentrate on lowering NAB’s risk and build its business in Australia and New Zealand – that NAB shares lag competitors’ and rumours about his future won’t go away.

“Of course it is frustrating [that NAB’s UK travails and other legacy issues] distract from what otherwise is a pretty good story," he says. “If you look at last year, the results in most of our Australian business are better this year, so if people liked the core franchise result last year, then that’s actually just got better."

Cauterise the deep wounds from NAB’s American and British history in the latest result and the return on investment is 17.2 per cent – “at the top of our peer range", Clyne notes with evident satisfaction.

So he’s not off to join the Labor Party as one strand of rumour has it? “What I’m looking for of course is a job with longer hours and less money," he says drolly. “I don’t know how that got some currency."

Does he actually enjoy running NAB, then? “I have never looked at this role in terms of enjoyment," Clyne says. “I have always been here for shareholder value. Shareholders are not looking for me to enjoy the job, they want me to do the job."

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Clyne, the 198cm ocean swimmer and former rugby player, is a particularly dry fish who can be quite engaging. That dryness, coupled with a preference for spending his time in the bank and not in public, has contributed to scuttlebutt about his tenure. In part it simply reflects the market:
Ian Narev
is new at
Commonwealth Bank of Australia
,
Mike Smith
is a favourite with his ebullient personality and Asian strategy for
Australia and New Zealand Banking Group
,
Gail Kelly
’s last solid
Westpac Banking Corp
result bought time.

But it also reflects the fact that Clyne has courted neither the other banks nor the often insular world of corporate Australia, where the club of traditional CEOs and directors is as prone to gossip and as cliquey as any mid-week golf group.

Ask Clyne what he has achieved at NAB, despite the bank’s shares under-performing peers by around 20 per cent over the last 12 month bank rally, and he does have a cogent story to tell.

NAB has just posted the highest ever customer satisfaction score for a major bank, according to Roy Morgan Research, the first score over 80 per cent for a major. Staff engagement is at a record high despite a resolute cost focus since Clyne took the helm (and testimony to his commitment to spending time internally not externally).

NAB’s profit fell 22 per cent in the September year to $4.1 billion, hit hard by the decision two weeks ago to top up provisions for bad and doubtful debts (mainly in the UK) by $250 million. Wednesday’s statutory result, Clyne argues, doesn’t reflect the performance over his tenure but it is the number the market tends to price in over time. One-offs still hit the bottom line.

There is no doubt this latest result would have looked a lot better if Clyne had taken the decision three or four years ago to sell off the US and UK assets. But that “wouldn’t have been the best result for shareholders, and I’ve spoken to them a lot.

“There is no doubt the sell-side [banking analysts who make the recommendations for brokers] and the buy-side [fund managers who invest in the shares] have a different perspective," he says.

In avoiding a fire sale though, Clyne maintains NAB has still been considerably “de-risked" – the danger of more of the shocks that have marred recent years is receding. NAB Capital, the business which loaded up on dodgy American loans, is no more and its risk-weighted assets unwound from $25 billion in 2009 to $7.2 billion.

In March Clyne took the decision to turn the British banks, Clydesdale and Yorkshire, into a retail-oriented ongoing business and a rump holding mainly distressed commercial property loans destined for wind-down.

“Those loans were $7.7 billion and they’re now $5.6 billion," he says. “The British bank (without the bad rump) made $50 million. It’s a stand-alone retail bank, back in a sustainable position."

When NAB strips out the one-offs and bad loan provisions, so-called underlying profit grew 8.1 per cent to $10.4 billion while cash profit (which is after provisions but not one-offs) was flat at $5.4 billion.

The sell-side analysts remain cautious but Nomura’s Victor German captured a commonly held view in his summation of the result: “While we continue to expect the UK to present ongoing challenges for NAB, the key question is whether [this result] was a low point. Assuming no material deterioration in economic conditions relative to current already-subdued expectations, the bad and doubtful debt charge [which comes straight off the profit] should reduce in [the current financial year]. With a stronger earnings per share growth profile in fiscal 2013 through 2015 and trading at a price earnings discount of about 16 per cent to peers we believe NAB is a good long-term investment. Maintain buy."

The market has agreed with Clyne’s central argument that the domestic franchise is performing well, and the record shows he has been resolutely consistent in his message for four years.

“We had a personal bank that was going backwards, losing market share, customer satisfaction well below the market," he says. “And we were the smallest personal bank, we weren’t getting deposit growth or any of those sorts of things. And we had the mergers occurring in the Sydney market [Westpac-St George, CBA-BankWest] which was affecting the position of the personal bank.

“We went out there and said we want to grow. We used price initially. Everyone said price won’t drive volume. Well, next minute the volume arrived. So people said ‘oh well, you got volume but NAB can’t process a mortgage ... oh, hang on a second NAB looks like it can process a mortgage’."

He’s on a roll, paraphrasing the naysayers: “Oh well, you might be able to process a mortgage but you won’t get transaction accounts. Oh hang on a second, transaction accounts are now growing ten-fold. Oh that might be right, but your asset quality is going to be hopeless. Oh guess what, asset quality is better than the back book. Oh well you’re stuck now with a massive discount, you’ll never close. Guess what, it’s closed."

Once he gets going, Clyne is not so low key. But he is realistic.

“We have put all that noise to one side," he says. “Through six obituaries, we have continued to deliver a stronger and stronger personal bank performance. And that’s about long-term value. That’s what we’ve got to focus on."